Generally, when someone purchases real property, such as a home, the borrower borrows money in the form of a mortgage to provide the funds to cover the majority of the purchase price of the property. A mortgage is a lien against the purchased property and is secured by the collateral of the specified property. In return for the loan, the borrower is obliged to pay back the amount of the mortgage plus interest within a specified period of time with a predetermined set of payments.
In addition to the mortgage, a home owner can borrow money in the form of, for example, a home equity line of credit (HELOC) to provide additional funds to, for example, pay for improvements to the home. A HELOC is another type of lien against the purchased property which is also secured by the collateral of the specified property. As in the case of a mortgage, the borrower is obliged to pay back the amount of the loan borrowed under a HELOC, plus interest, within a specified period of time with a predetermined set of payments. Thus, a single underlying property may have multiple liens associated therewith, such as a mortgage and a HELOC.
When multiple liens are associated with a single underlying property, the liens have different priority (i.e., positions) as to the repayment thereof. A senior lien or mortgage is entitled to be paid first in, for example, foreclosure before a junior lien. In this regard, a foreclosure is the legal proceeding in which the lender sells or repossesses a parcel of the real estate due to the owner's failure to comply with the terms of the loan. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property.
When the loan is being foreclosed, lien holders face the risk of not being able to recoup all of the money lent to the borrower due to, for example, reduced value of the real property and/or other fees associated with the foreclosure proceeding. Furthermore, junior lien holders are likely to suffer a more substantial loss then senior lien holders, since the senior lien holders are paid-off first. Accordingly, when lending money to a potential borrower, lenders evaluate risks associated with the potential loan.
Conventional tools that facilitate risk assessment associated with a loan involve evaluation of the borrower's credit worthiness to determine the likelihood that the borrower defaults on the payments and market trends to determine present and future value of the underlying property. Other methods for risk assessment involving a lender that holds a large number of loans include performing diagnostics where an indication of the likelihood of a lender suffering a loss in the event of the default is based on probability analysis of individual loans or groups of loans as described in US Patent Application, Publication No. US2006/0271472. Still other methods include risk assessment within a predetermined market that use an optimization function and standard multivariate nonlinear regression to process borrower-specific information, based on credit factors associated with borrowers who default as well as borrowers who never defaulted on loans, to compute the probability of default by the specific borrower, as described in US Patent Application, Publication No. US2006/0085325.
While the conventional methods described above may be useful in assessing the risks of loss when a lender is contemplating whether grant to a borrower a loan secured by the underlying property, such conventional methods are not helpful when a lender is faced with a decision regarding an existing loan that is in default. For example, when the underlying property has been damaged or destroyed due to a disaster (such as flood, fire, hurricane, etc.), the lender is faced with various options for disposition of the loan and/or the underlying property including foreclosing on the loan, selling the property or simply walking away from the loan/property without incurring any further costs.
The various options available to the lender have various factors associated therewith that impact the losses that the lien holder may incur depending on the selected option. Such cost factors include, but are not limited to, the lender's position as a lien holder (i.e., junior or senior), the costs associated with each of the possible options for disposition of loan/property (e.g., foreclosure fee, broker fee, etc.), and insurance coverage/payments on the underlying property.
Accordingly, there is a need for a system and method for evaluating loans associated with properties that have been affected by a disaster to facilitate a lien holder's decision for disposition of the loan/property.